Inflation, which is measured by the wholesale price index, rose to 12.94% in May from 10.49% in April, showed data released by the Ministry of Commerce and Industry on Monday. In May 2020, the WPI inflation had contracted 3.37%.
“The high rate of inflation in May 2021 is primarily due to low base effect and rise in prices of crude petroleum, mineral oils viz. petrol, diesel, naphtha, furnace oil etc and manufactured products as compared the corresponding month of the previous year,” the central government said.
The month-on-month change in WPI index for May when compared to April was 0.76%.
The fuel and power segment reported a 37.61% increase in May against 20.94% in April. In manufactured items, inflation rose to 10.83% in May compared to 9.01% in the previous month.
Inflation in food items eased marginally to 4.31% in May despite a marked rise in onion prices.
Retail inflation data for the month of May is likely to be released later on Monday.
Independent credit rating agency ICRA’s Chief Economist Aditi Nayar told The Hindu that the large month-on-month correction in the prices of food items was done for perishables, including fruits and vegetables. This suggests that there is more demand amid supply disruptions due to the coronavirus-induced restrictions.
“The core-WPI inflation is expected to climb further to a new series-high 10.4-10.9% in June, and sustain in double-digits until September 2021,” Nayar said. “Nevertheless, we foresee a limited transmission of the same to the CPI inflation, as cautious demand will keep pricing power in check in the immediate term.”
However, she cautioned that risk factors remain in the form of rising in crude oil prices, increasing domestic fuel prices and weak currency value of the Indian rupee.
On June 4, the Reserve Bank of India kept the key lending rate or the repo rate unchanged at 4% and reverse repo rate or its borrowing rate at 3.35%. This was the sixth consecutive time that the central bank has maintained status quo.
RBI Governor Shaktikanta Das said the central bank will maintain an accommodative policy stance as long as necessary to revive growth and to mitigate the impact of the coronavirus pandemic.